The use of discretionary trusts has meant that many property owners find they have lost the threshold that can save up to $17,200 per annum. The most common structures are those of unit trusts with a discretionary trust as the unit holder and where the property is held directly on terms of a discretionary trust. The following should be considered:
Many landowners are being levied the surcharge even though it shouldn't apply to their circumstances. Just because the property is residential doesn't mean the surcharge applies. It is the use of the property that determines whether the surcharge applies. There has also been significant confusion over the application of the surcharge in relation to trusts where the beneficiaries are connected to the 8 countries covered by the double tax agreements being
New Zealand, Finland, Germany, India, Japan, Norway, South Africa and Switzerland. MGS Private has been successful at challenging the surcharge where trusts contain beneficiaries from those countries.
Revenue NSW is raising assessments where they believe the dominant purpose of the land is not primary production. MGS Private has engaged with Revenue NSW and had successful outcomes in terms of primary production properties where there is a mixed use of the land, including residential components. Revenue NSW is raising assessments on land previously deemed primary production to determine whether the dominant use is primary production as outlined in section 10AA of the Land Tax Management Act 1956.
The principal residence exemption from land tax does apply to land held by a fixed trust as long as certain conditions are met. MGS Private has successfully restructured trusts that own a taxpayers principal residence so that the exemption applies. Revenue NSW has but a few words on page 10 of Land Tax Ruling LT 082 which reads:
"If the land is owned by a trustee of a fixed trust, and the trustee is a natural person, the exemption will apply if the land is used and occupied by a person beneficially entitled to the land under the terms of the trust."
It should be remembered that the person occupying the premises must own at least 25% of the units on issue.
Consideration should be given to restructuring property holdings so that multiple land tax thresholds may be obtained. A restructure, especially a corporate consolidation/reconstruction, should be considered in seeking to reduce the land tax payable. MGS Private has successfully restructured taxpayers land holdings to produce a better land tax outcome without triggering CGT or GST.
Revenue NSW provides private rulings on unexecuted documents so that certainty can be obtained before any amendment or restructure occurs.
